June 6, 2025
It also reduced the cash reserve ratio for banks by 100 basis points to 3%, aiming to free up liquidity and encourage lending
RBI Governor Sanjay Malhotra said the move was designed to "frontload" support for economic growth, shifting the central bank’s stance from “accommodative” to “neutral”
As food prices eased, India’s inflation forecast was revised downward from 4% to 3.7% for the financial year ending March 2026
Despite a 7.4% year-on-year GDP growth in the March quarter, full-year growth slowed to 6.5%, down from 9.2% the year before
India’s central bank announced a deeper-than-expected interest rate cut, reducing the benchmark repo rate by 50 basis points to 5.5%. The RBI seeks to inject momentum into the economy amid easing inflation. The Reserve Bank of India (RBI) also cut the cash reserve ratio for banks by 100 basis points to 3% in a bid to boost lending and liquidity.
This marks the third consecutive rate cut in 2025, with the central bank lowering the benchmark rate by a percentage point since the beginning of the year.
RBI Governor Sanjay Malhotra described the decision as a deliberate frontloading of policy support to spur economic growth. Alongside the rate moves, the RBI revised its inflation forecast to 3.7% from 4% for the financial year ending March 2026, citing falling food prices.
Malhotra noted the importance of focusing on domestic growth in light of ongoing global uncertainties and confirmed that the RBI had shifted its policy stance from “accommodative” to “neutral”. He framed the decisions as steps toward lifting India to a higher economic trajectory.
India’s inflation has been easing, with April’s consumer price index rising at just 3.2% year-on-year, the slowest rate in nearly six years. This has allowed the central bank to prioritise growth.
The rate cut follows new GDP figures showing the economy expanded 7.4% year-on-year in March, up from 6.4% in the previous quarter. However, annual GDP growth slowed to 6.5%, compared with 9.2% the year before, due to weak corporate performance and slower consumption.
Economists, including Miguel Chanco of Pantheon Macroeconomics, were surprised by the scale of the cut. Chanco now expects the RBI to hold off on further changes in August before reassessing the outlook later in the year.
India’s economy, while less reliant on exports than some of its Asian peers, remains exposed to global trade frictions. President Donald Trump has threatened to impose a 26% tariff on Indian imports if a trade deal is not finalised by July. In response, New Delhi has offered significant tariff reductions across various goods.
Governor Malhotra, who took over in December after Shaktikanta Das’s tenure, has overseen a series of rate cuts and liquidity measures since signs of an economic slowdown emerged last year. Despite being the fastest-growing major economy, many analysts believe India needs sustained growth of 8% or more to meet Prime Minister Narendra Modi’s vision of becoming a developed country by 2047.
Source: Financial Times